by Guest » Mon Feb 01, 2010 12:42 pm
I had applied for a life policy with a new agent. I'm scared as to how I'd stand if this carrier ever goes bankrupt. Has it ever happened in the past? what do I do? I was thinking of getting another policy as a back-up plan.
Posted: Thu Feb 04, 2010 07:13 pm Post Subject:
Again, I don't think the question most of us asked has been answered, what prompts the worry about bankruptcy?
Posted: Fri Feb 05, 2010 06:24 am Post Subject:
Again, I don't think the question most of us asked has been answered, what prompts the worry about bankruptcy?
I'm told that A.M.Best has recently withdrawn the rating "A" for my carrier's financial strength. As I've mentioned earlier, I'm from Delaware and the insurer carries on their operations here at Newark. Now, I don't wish to add more details regarding this in an open platform.
Posted: Fri Feb 05, 2010 01:05 pm Post Subject:
Guaranty funds should not be relied upon for payment in the event of carrier insolvency though, they are merely a backstop
Insurance companies, with orders from the state insurance regulators are required to keep adequate reserves for all times. This is only a professional approach so that they can ensure payment of future losses. Each state has a guarantee fund, financed by the insurance companies themselves. The amount may vary from one state to another.
Posted: Sat Feb 06, 2010 08:23 am Post Subject:
As soon as claims don't get paid, the insurance industry as we know it is done.
This is the essence of the matter. Insurance companies are in business to make money (like any other business). They stay in business by paying claims.
All admitted insurers in any given state pay into the state's insurance guaranty fund(s) according to the lines of business they write. If an insurer is conserved by the state regulator (Commissioner, Superintendant, etc), and subsequently liquidated, the proceeds from the sale of assets are turned over to the guaranty association for use in paying claims. (Most only pay up to 80% of the death benefit or cash value, to a specific limit that varies from state to state.) But if claims exceed assets to the point that the guaranty fund runs out of its own funds to pay claims, they assess all the remaining admitted insurers enough to cover the claims.
As to why AM Best would revoke a financial strength rating, anything could cause that, from actual poor financials that need to be verified, or a company's acquisition by another. The FSR is no guarantee of an insurer's ability to pay claims, merely an educated guess.
Posted: Wed Feb 10, 2010 06:59 am Post Subject:
All admitted insurers in any given state pay into the state's insurance guaranty fund(s) according to the lines of business they write.
Max, would be able to describe these "admitted insurers" briefly? Is it just about being registered with this guarantee association and contributing towards the fund? Are there any specific guidelines that these insurers need to follow in addition?
Posted: Wed Feb 10, 2010 11:01 am Post Subject:
Max, if I'm not mistaken, it may be only California that has the 80% limitation. I'm guessing that you think that the 80% is common because you are in California. California is the exception in this regard.
The bottom line with life insurance is that historically 100% of death claims have been paid. Looking into the future, if a death claim ever doesn't get paid, the industry as we know it is finished.
Posted: Thu Feb 11, 2010 05:41 am Post Subject:
First, to Stephen . . .
An admitted insurer is one that is "authorized" to legally transact insurance in a given state. In order to be admitted, an insurer must meet the financial and other requirements (including ownership and control issues) in each state's insurance code or governing laws. It is not a discussion of "good" or "bad" as a business entity. In California (and all other states that have a guaranty fund, as far as I know), all admitted insurers must pay into the guaranty fund(s) according to the line(s) of insurance they write. We have a Life & Health Insurance Guaranty Fund that covers non-variable contracts in life insurance and annuities, as well as health insurance and long term care, but not disability income (health / LTC insurance claims are paid 100% to a limit of $200,000). We also have an Insurance Guaranty Association that covers property and casualty contracts and workers' compensation (only WC medical claims are paid 100% without limitation, as required by state law). The fees paid to the guaranty associations are about 1% of premiums paid.
Now, to Insurance Expert . . .
I think you misread what I clearly wrote, or you fail to understand the nature of insurance guaranty associations. The CLHIGA pays 100% of death claims (##) but it does not pay them 100% ($$) [How would one begin to know when 80% of the total number of death claims is received?]. I don't know of any state life insurance guaranty association that pays 100% ($$, not ## of claims) of all death benefit proceeds, and California is not an exception. California is, perhaps, on the low side at a limit of $250,000 per insured / $5,000,000 per owner (not per policy), and not to exceed 80% of the face value of the policy. But most states' guaranty associations cap their liability at $300,000 or so. The CLHIGA also limits payment of policy cash value or "present value" of annuity benefits at 80% of actual value, to a maximum of $100,000. A person who deposits $1,000,000 into a cash value policy or annuity the week before an insurer is conserved by the insurance commissioner and ultimately liquidated will not receive more than $100,000 in cash (or $250,000 for their beneficiary if they die) from the guaranty association in exchange for their untimely purchase.
All of the guaranty associations have the power to assess member insurers in the event the association runs low on cash to pay claims. You can check out the California Life & Health Guaranty Association's website for more information. ("califega.org")
And from the National Association of Life & Health Guaranty Associations ("nolhga.com"):
Are all policies fully protected?
Not always. Like the FDIC, state guaranty associations have maximum benefit limits. These limits are established by state law and can vary from state to state, but most states provide at least:
* $300,000 in life insurance death benefits
* $100,000 in cash surrender or withdrawal values for life insurance
* $100,000 in withdrawal and cash values for annuities
* $100,000 in health insurance policy benefits
The overall benefit “cap” in most states for an individual life is $300,000, although some states have maximums that are much higher.
Hope this helps.
Posted: Thu Feb 11, 2010 03:04 pm Post Subject:
Max, I understood exactly what you wrote. If someone has a $100,000 policy, in California, only $80,000 would need to be paid from their Guarantee Association. In all other states, $100,000 would be paid.
California is the only state that caps the claim at 80%, not to exceed their limit. All other states, go to 100%, not to exceed their limit. (I'm not 100% sure that California is the only state that does this, but I think that they are.)
Posted: Sun Nov 27, 2011 05:48 am Post Subject:
Insurance Guaranty fund will insure your company up to $300k. If your policy is larger than 300k you then should be worried about the company going bankrupt
Posted: Thu Dec 01, 2011 10:46 pm Post Subject:
I'll give you a completely different perspective. Completely ignore the Insurance Guaranty Fund. There are two reasons for this. 1) It is unfunded. 2) All death claims in the U.S. have been paid 100%.
What will happen if major insurers get in trouble and can't pay claims? The Guaranty Associations won't have the money to pay the claims.
What happens when the insolvency is simply with one company? The death claims have always been paid 100%. Why? Insurance is nothing more than a piece of paper with a promise. Once people start worrying about whether death claims will be paid, there is no more insurance industry as we know it. It is in the industry's best interest to pay all death claims.
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